Question

In: Accounting

McAllister, Inc., employs a normal costing system. The following information pertains to the year just ended.

McAllister, Inc., employs a normal costing system. The following information pertains to the year just ended.

  • Total manufacturing costs were $1,320,000.

  • Cost of goods manufactured was $1,286,000.

  • Applied manufacturing overhead was 30 percent of total manufacturing costs.

  • Manufacturing overhead was applied to production at a rate of 80 percent of direct-labor cost.

  • Work-in-process inventory on January 1 was 75 percent of work-in-process inventory on December 31.

Required:
Compute the following to support the preparation of financial statements.
1. Compute the total direct-labor cost for the year.

2. Compute the value of the company’s work-in-process inventory on December 31.

Solutions

Expert Solution

1.

Applied manufacturing overhead = $1,320,000*30% = $396,000

Total direct labor costs = $396,000/80% = $495,000

2.

Let Work in process,Dec.31 be X:

Work in process,Dec.31 = Work in process,Jan.1 + Total manufacturing costs - Cost of goods manufactured

X = 0.75X + $1,320,000 - 1,286,000

X - 0.75X = $1,320,000-1,286,000

0.25X = $34,000

X = $34,000/0.25 = $136,000

Hence Work in process,Dec.31 = $136,000

ekkarill92 answered 2 years ago
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